When you are preparing for parenthood there are many things to think about. Do we have space in our apartment or house for a baby? Who will take parental leave? Will I go back to work after having a baby? Can we afford a baby? Saving For My Child’s Post-Secondary Education.
Once your baby is born there are many more questions. When should I start feeding her solids? Why isn’t he walking/talking yet? Should we take her to the doctors because of this cold/bump/cough?
The questions continue throughout your child’s life. If you have a kids in high school your questions might also include; will they go into post secondary and perhaps most important – how do I begin Saving For My Child’s Post-Secondary Education.
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How will I afford to send my kid to college?
In Canada the best way to save for your children’s education (in my opinion) is an RESP (Registered Education Savings Plan). RESP’s are easiest and most worthwhile if you start early (read in your babies first year) BUT you can still open an RESP – and see its benefits – if your child is in high school. There is more information on the Royal Bank (RBC) website to learn about Saving For My Child’s Post-Secondary Education.
Why should I open an RESP when I can just save in a savings account?
I have worked at a financial institution for 10 years and I understand many people like the control of seeing their money in a regular savings account. A RESP is a much better choice for a few reasons.
1) You receive free money from the government! I know I should have led with this – Open an RESP and get free money! I will talk more about this below.
2) Your money is safe. It can be used for one child or any of your children depending on how the RESP is set up. To find out which option is right for you contact your nearest RBC advisor.
3) You can save a little or save a lot. The interest rates in Canada are lowest they have been in years and you will (almost) always get a better rate with an investment (like an RESP) then you will with a regular savings account.
Okay, tell me more about this free money
RESP’s are a registered investment with the Government of Canada. There are a few benefits of the arrangement. First, RESP’s are tax-sheltered (yay!). Second, the government will match up to 20% on the first $2,500 contributed annually, up to $500 a year with a lifetime maximum of $7,500. If you are a low-income family you may be eligible for additional grants.
But I have zero extra money in our budget. How can I contribute?
My all time favourite reason why I love the RESP we have for our daughter is I do not have to contribute a lot of money to see it grow. Our daughter is almost 2 years old and she has more money in her RESP then we do in our savings. We do not have extra money to contribute on a regular basis. Instead we ask for monetary gifts ($10) at holidays and her birthday. People are more likely to gift a small sum if they know there is somewhere it will go that will be for the child.
What if my son/daughter does not go into university? What will happen with my money?
There are a few different scenarios and the answer will best be answered by your RBC advisor. As a general answer – an RESP is not just for college or university education it can also be applied to apprenticeship, non-credit courses etc. If your child chooses not to pursue any of these courses your contributions are still safe you just might lose out on the government grant money.
I am pregnant can I set up an RESP now?
In order to start an RESP the beneficiary needs to be a Canadian resident and have a SIN (social insurance number).
Any last minute tips?
We love our RESP. I have a huge load of student debt and will for years. I do not want my daughter to end up with the same. My tip is to start as soon as possible – that way you can enjoy all the great perks an RESP offers. If the beneficiary is born late in the year make sure to open the RESP before the year ends. Our daughter was born in the middle of November and we did not open her RESP until April. We lost out on the government grant for the first year. If you cannot get into an RBC branch before the year is over send a grandparent instead. As long as they have the beneficiary’s information they can set one up.
Disclosure: I am part of the RBC RESP blogger program with Mom Central Canada and I receive special perks as part of my affiliation with this group. The opinions on this blog are my own and not influenced.
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Sounds like a great program! My hubby and I were talking about college for our kids. One starts in another 6 years, the other in another 11 years..
This sounds awesome! Wish we had something like this in the U.S.!
That’s great that you have that in Canada! It’s definitely something that my husband and I think about all the time. College is so expensive! We have a savings account going for our daughter and we hope to keep adding to it. She’s only 2 now so we just have to plan well!
Sounds like an awesome way to save money for education. I love that you get free money by doing it
I have to be honest and say that, during my time in the financial services industry, I have come across much more flexible ways to save for a child’s future.
From a personal standpoint: my parents put money into RESPs for all three children. I couldn’t draw on it because I went to a private (Christian) college, my brother couldn’t because he went to a trades college (that clause was changed after his college years) and my sister was the only one who could draw on it. She only went for one year and then took a year off. Now my parents had all the “free” money taken back and it rolled into their RSPs. Their RSP will start kicking out money to them, increasing their tax bracket (and automatically holding back their taxes) because they are still drawing and income from the farm and don’t need to RSP money yet.
The conclusion I came to from my experience in the industry as well as experience in my personal life: don’t put money where the government controls the rules. The government can change those rules at any time and, to be honest, I want my children to be able to access the money we put away for whatever they choose to do. It may be studying abroad, starting a business, or even buying a house and starting a family. Our children’s investments are in a place that allows us, as parents, to make the choice of when and where our kids can use those funds.
Plus I’m gladly willing to give up the “free” money from the government to find better rates of return that you can get in an RESP to begin with as well as maintain that control instead of handing it over to someone who has no vested interest in my children and their needs.
Wow this is awesome! I wonder if we have an equivalent in the USA. Free money works for me!
Is this something only in Canada? I live in the US.
RESP’s are only in Canada. I am not sure if there is a similar program in the USA. I would call a local bank and find out.
This sounds great, wish we had something hear like that.
I wonder if they have something like an RESP here in the U.S.?
I am really not sure. You should look into it though!